Are you financially fit?

Buying a new home should be an exciting and happy time for you and your family. But according to research conducted by Genworth Canada, many people find the home-buying process stressful.

While a home is likely the biggest purchase you will ever make, many first-time homeowners aren’t aware of how much they can afford. “Many people don’t have a budget, don’t understand the implications of taking on debt and as a result run into difficulty,” explains Stuart Levings, Chief Operations Officer of Genworth Canada.

That’s why Genworth Canada is launching its third annual Homeownership Education Week. From April 9 to 13, experts will offer tips and information to future homeowners on how to make good financial choices.

The first step in the home-buying process is to improve your financial health. “Financial fitness means that you’re comfortable with how you’re managing your financial affairs, you know where your money’s going and you’re relying on healthy financial habits to support your lifestyle,” says Henrietta Ross, Chief Executive Officer of the Canadian Association of Credit Counselling Services (CACCS), a network of non-profit organizations that provide financial education and services. Genworth Canada’s partnership with CACCS during Homeownership Education Week helps reinforce the message that taking control of your finances is the best way to reach life goals such as owning a home.

If your financial situation isn’t where you’d like it to be, you’re not alone: “About half of Canadians tell us that their financial fitness needs attention,” says Ross, adding that most people who want to improve their monetary health simply don’t know where to start. That’s where Genworth Canada and CACCS can help. Whether you’re actively looking to purchase a new home or just trying to take control of your money, here’s what you need to know to improve your financial fitness.

Know where you’re at

Take a snapshot of the money going in and out of your bank account, where you’re spending that money and why. “If the outflow of money is greater than the money coming in, it’s time to engage in a plan to find a way to increase income or decrease expenses,” Ross advises.

Genworth Canada and CACCS created the Financial Fitness Assessment Tool as an easy way to help Canadians get a full picture of their finances. Based on answers to a series of questions about your financial habits and behaviour, the tool provides you with a financial fitness score and an assessment of your financial situation.

Knowing your credit score is also important. This will help you understand how you’ve been using your credit and how someone like a mortgage provider would evaluate the quality of your credit, Ross explains. You can obtain a copy of your credit report from one of the major Canadian credit report providers, either Equifax Canada or TransUnion.

Create a budget

“If you’re considering making a large purchase like a home, it’s imperative that you understand your day-to-day expenses such as utilities, food, child-care, transportation and insurance,” says Levings. A bank can approve you for up to 35 per cent of your gross income for mortgage payments, but that’s not truly affordable for everyone. “Take a look at your net income and create a budget based on your current expenses and an estimate of your future home costs such as insurance, utilities, taxes and regular maintenance. Only then you can see how much you truly have to spend on a mortgage or determine what changes you need to make to your spending habits in order to get there,” Levings advises.

Use the What Can I Afford calculator tool to help determine the mortgage amount that your budget can handle.

Pay yourself first

The most important payee in your budget is you. Creating a personal savings plan will help you achieve large goals like buying a home, and also prepare you for those surprise expenses that come with owning a home. Consider, for example, if you have enough money socked away to cover the costs of repairing a leaky roof or broken water heater. “It’s often said that people are two paycheques away from insolvency,” says Ross. “Personal savings provide that important safety net which can cushion unexpected demands on personal finances.”

Grow your nest egg by setting up an automatic withdrawal from your chequing to savings account each time you get paid. Chances are you won’t even miss that money.